Schemes are still dissuaded from integrating ESG-conscious investments into their portfolios due to a lack of evidence on performance, a Sackers survey finds.
In a poll of 102 trustees and scheme managers, 48% cited this as the biggest barrier to implementing ESG policies, followed by 33% who blamed a lack of time and/or resource.
Other respondents blamed "crazy levels of regulation", while 28% said there were just not enough products in the marketplace, with another noting "an awful lot of the ‘green' bonds we see are just greenwash".
The survey, conducted in July, also discovered those overseeing defined contribution (DC) default funds are more likely to be influenced by members' views - but just 16% felt enough was being done to consider ESG factors for DC default funds, compared to 35% for defined benefit investments.
Speaking to PP, Sackers partner Stuart O'Brien said it would be difficult for trustees to rely on performance before making decisions.
"If you're waiting for past performance, that might not necessarily be approaching the subject in the right way," he said. "A lot of this is about dealing with forward-looking risk. Climate change is an obvious example; you cannot find a fund which is going to demonstrate that it's a good diversifier against climate change risk based on past performance."
Even so, over the five years to 30 August 2019, the MSCI World ESG Leaders index secured 6.67% annualised returns, only marginally below the 6.75% by the MSCI World index.
Just 13% of respondents said they had made, or would make, material changes to their investments - while 85% said they had or would update their scheme's statement of investment principles (SIP). With another 57% saying they would ask their advisers to do this, O'Brien noted this this would likely a compliance exercise.
"There are quite a small number of schemes actually making any changes to their investment strategies," he said. "At this stage, it does seem to be a bit of a paper exercise, and I'm not being judgmental on that.
"Changing investment strategy takes time so it's perhaps not surprising that, at this stage, this is about writing down policies rather than substantive changes."
The upcoming regulations demand trustees set out their approach to integrating ESG into investment policies from 1 October, but many are considering this as a mere compliance exercise.
O'Brien said, from work with his clients, this seemed to be more schemes wanting to get this out of the way and focus on real change next year - suggesting the survey's figures could take a stark turn next year.
"There's quite a strong sense that trustees are asking their advisers - or doing it themselves - to update their SIPs for October this year as an interim step," he said. "Actually, they want to spend more time on the topic next year."
He said this was for two reasons: first, meeting the deadline, but also recognising that additional regulatory demands will, from next October, arise from the EU's Shareholder Rights Directive.
"With all that coming down the track, there's a sense that whatever trustees do now, they're going to need to do more next year," he added.
"This has caused some trustee boards to say ‘well, given that we've got a lot more to do next year, let's just get compliant wording in this year and then spend more time doing something more detailed, more bespoke.'"
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